For those who spend significant time researching stocks day in and day out there is a natural tendency to look towards the idea of day trading as a way to increase profits and decrease loses when the direction of a stock or the overall market seems crystal clear. While no one knows for certain what will happen in the future, you can always use the tools of statistics to diversify your picks and increase your odds of a positive outcome 15 minutes, one hour or four hours into the future. If you find yourself in this situation what should you do? [Read More...]
The first quarter of Smart Money Math is now officially in the books.
I started this project on June 1st, 2019 and now have taken it a full financial quarter. While there have been ups and downs over these first three months, overall, the Smart Money Math portfolio has outperformed the S&P 500 by 5.77%. The details are shown below. [Read More...]
The right tool can make all the difference between success and failure. We’ve all heard this statement in some form or another before, but what does it really mean? In life, the right tool is obvious and clear. In finance, it’s not always so obvious.
For example, say you own a house located within a flood plain. A large storm is coming, and you know that you need to fill large number of sandbags quickly with sand to surround your home and protect it from being flooded. Do you use a shovel or a spoon to fill the bags? Easy choice right. [Read More...]
Sometimes in order to broaden your investing approach you need to go outside financial websites and blogs and look to other forms of literature. In this blog I will be doing that from time-to-time starting with my first book review here.
To kick things off I chose to review a fabulous book by Annie Duke titled Thinking In Bets. This book walks through the phycology and mental strategies used in high stakes, winning poker. Mrs. Duke herself is a highly accomplished poker player having won the coveted World Series Of Poker and many millions of dollars over the course of her professional playing career. So, what can we learn from a poker player that is applicable to stocks? [Read More...]
Let’s say you have found the perfect stock. You’ve done your homework and know everything fundamentally about the company there is to know. It’s a rock-solid business with a few near-term and potential-long term catalysts that could drive the price much higher than it is today. Based on intrinsic value you estimate now appears to be a good time to buy, so you take the plunge and buy a few shares. Here is where it gets tricky...
Even with all the homework you’ve done, NOTHING in the stock market is certain. As such, I’d like to walk through a few common scenarios I have experienced and seen myself. [Read More...]
Buy low, sell high. That’s the winning strategy to stock investing stated as simply as possible. While to the novice investor this might seem easily attainable, for the seasoned stock market veteran they realize just how difficult meeting this goal can be.
If you have your sights set on beating the averages (i.e. getting a better return than the S&P 500), you need to put in the time and effort to make it happen. Anyone can simply guess whether a stock will go up or go down, but what is the probability of successful long-term investing doing that? I can tell you from personal experience… not good.[Read More...]
In one of my recent posts I made the argument that the stock market is not gambling if you use a diversified basket of stocks and chose to invest in the overall market. In that post, I used a graphic of the S&P 500 which showed that over the course of decades the S&P 500, which is often a proxy for the overall market, has increased. The logical question for the prudent investor is then: Why is this the case?
I admit I struggled with this idea for a longtime. As a person who has a pseudo-efficient market mindset, believing that the market will generally go up over time is very important to me. After all, if it didn’t, then investing in index mutual funds and ETF’s would ultimately prove to be a losing proposition. [Read More...]
This morning I noticed something not that unusual as I was standing at Starbucks waiting for my breakfast egg white omelet. The man standing next to me had the Robinhood app open on his phone and was scrolling through a list of stocks he was interested in following (Sound familiar?).
Since I am a proponent of Robinhood for Smart Money Math, I leaned over and asked him how he liked the app. Unsurprisingly he told me he liked it especially since it allowed him to quickly choose which stocks he should buy and which he should sell. [Read More...]
I love the idea of using mathematics to analyze different stock picks. It’s why I started this blog and a technique I believe can be extremely useful when looking at stock portfolios. The logic behind using mathematics in equity analysis is simple: Stocks by nature are probabilistic and mathematics gives us the opportunity to make sense of the uncertainty.
In order effectively apply statistics to stocks you first need to understand the underlying up / down probabilities of stocks themselves. This is somewhat less mathematical but a critical foundation to successful Smart Money Math. To determine the likelihood of stocks going up or down in a given period of time there are two unique schools of thought. [Read More...]
Every event in life can be classified as either deterministic or probabilistic. In actuality nearly everything can be argued to be probabilistic except for maybe death and taxes (sounds morbid I know, but I didn’t make it up).
When it comes to stocks most people would argue that the movement of stock prices is more probabilistic than most things. If someone tells you that they know for certain that a stock will go up or down, take it with a large grain of salt. One of the first things I usually ask when someone says this to me is “so did you mortgage your house and invest all your money in it?”[Read More...]
For anyone new to stocks and other financial instruments, the daily rise and fall of portfolio valuations and endless banter on what to do and how to do it might seem a bit overwhelming. You can easily get swept up in the noise and excitement of finding the “next great stock” that makes you a rags-to-riches millionaire overnight.
To some this might seem exciting and give reason to poke and prod the stock market even further. For others, this might make them pause and hesitate to invest at all. For those of us who tend to hesitate or cringe at the thought of investing in stocks, one of the common questions I hear again and again seems to be: Is the stock market simply gambling? [Read More...]
Are you afraid of losing money in your investment portfolio during the next market downturn? You’re not alone. Our human brains are wired to worry more about losing money than gaining an equivalent value due to something psychologists call loss aversion. Perhaps this is why so many people talk about different strategies you should employ in your investment portfolio before the next market downturn. This feeds our desire to protect what we have now.
I’ll admit that when I started investing years ago, I had this same tendency. I would look at my portfolio daily to check and see if things had gone down. I would scan the latest headlines looking for signs of an impending market crash. Of course, if you look hard enough finding these types of articles isn’t that hard.[Read More...]
When I was younger, I realized a very important financial life lesson. There are two ways you make money in life. The first way is what most of us do every day. Getting up early and dragging ourselves to our weekly job. The second way is through investing.
In my opinion investing is the easier and most efficient method of financial stability in life. It is how my wife and I have been able to generate an enormous amount of wealth and stability that we would not have been able to afford with our weekly jobs alone. So why don’t more people become investors? [Read More...]
Now that I have officially launched the Smart Money Math portfolio, it’s time to get down to the nuts and bolts of how it (and this blog) will work! While things may change over the course of time, my initial construction will consist of the following setup described below. [Read More...]
Welcome to Smart Money Math! This is my first in hopefully a long line of successful posts. My name is Matt and I am an Engineer, Developer and Finance Enthusiast. I own my own house with my wife and have been investing as an accredited investor for over 10 years.
In my investing experience I have seen lots of highs and a few lows. I have seen friends make millions investing and other lose everything. What has separated the winner from the losers? [Read More...]